Index Outlook: Indices gather strength

Both the Nifty 50 and Sensex closed at record highs last week

Bullishness can continue The domestic bellwether indices, the Nifty 50 and the Sensex managed to scale new highs last week amid intra-day choppiness. The third quarter results of blue-chip stocks could keep the volatile movement in the index for a while but the broader focus will be on the upcoming Union Budget.

The Index of Industrial Production (IIP) rose to 8.4 per cent in November from 2 per cent in October 2017 and the Consumer Price Index (CPI) increased to 5.21 per cent in December from 4.88 per cent in November last year. The increase was partially due to the lower base effect as a consequences of demonetisation a year-ago. Markets could react in a positive way; moreover, strong close in the US markets can also boost the initial bullish momentum. Going forward, the Q3 earnings of key blue-chip stocks can set direction of the markets. However, rising crude oil prices and rupee movement will also need a close attention.

NIFTY 50 (10,681.2)

The Nifty 50 index added 122 points or 1.2 per cent last week in the midst of volatility and closed at record high. This rally has decisively breached a key medium- term resistance at 10,500.

Short-term trend: The Nifty 50 has been in short-term uptrend since taking support at 10,033 in early December 2017. While trending up, the index breached is 21- and 50- day moving averages in late December and paused testing a vital resistance at 10,500. However, the recent rally has helped the index to surpass this hurdle. The daily and weekly relative strength indices feature in the bullish zone backing the uptrend. Both the daily and weekly price rate of change indicators are featuring in the positive territory but displaying signs of negative divergence which indicates a near-term correction. Such a decline can find support in the significant base between 10,450 and 10,500.

The index has strengthened its short-term uptrend. Short-term outlook is bullish for the index and continuation of the uptrend can take the index higher to 10,800 levels in the coming weeks. On the other hand, only a strong fall below 10,450 will start threatening the uptrend and drag the index down to 10,350 and 10,250 levels. Subsequent key support is placed in the range between 10,000 and 10,100. Investors with a short-term horizon can stay invested with a revised stop-loss at 10,400 levels. Medium-term trend: There is no alteration in the medium-term trend which is up for the index. Investors with a medium-term perspective can remain invested with a revised stop-loss at 10,000 levels. With the breakthrough of the key resistance at 10,500, the index appears to have resumed its uptrend. The medium-term targets are 10,800 and 10,921 with minor pause on its journey. Conversely, an emphatic plunge below the key medium-term support at 10,000 will be a threat to the uptrend. Such a decline can pull the index down to 9,700.

NIFTY BANK (25,749)

Last week, the Bank Nifty increased 147 points or 0.55 per cent. The index continues to test a key resistance at 25,700. It trades well above its 21- and 50-day moving averages. The daily relative strength index is on the brink of entering the bullish zone while the weekly RSI continue to feature in this bullish zone. A strong rally in the coming week can take the index higher to 26,000. Further breakthrough of the vital resistance level of 26,000 can push the index northwards to 26,200 and then to 26,300 in the short to medium term. Traders with a short-term perspective can consider buying if the index breaches 25,700 decisively with a tight stop-loss at 25,630. But, if the index fails to move beyond the current resistance or 26,000, then it can remain in a sideways range for some time. Key supports below the immediate base level of 25,400 are pegged at 25,200 and 25,000. A conclusive fall below 25,000 can alter the uptrend and pull the index lower to 24,800 and 24,500 over the medium term.

SENSEX (34,592.3)

Last week, the Sensex resumed its uptrend by gaining 438 points or 1.28 per cent. The index has surpassed a key resistance at 34,000. The short-term uptrend continues to be intact for the index. It trades well above its 21 and 50-day moving averages. The daily indicators and oscillator feature in the positive territory backing the uptrend. The index can extend its rally to 35,000 with a minor break at 34,750 levels. On the other hand, a corrective decline can take support in the 33,800-34,000 band. Next key support is placed at 33,500. Only a strong decline below this base level can bring back the selling pressure and pull the index down to 33,200 and 33,000 over the medium term.

GLOBAL CUES

The Dow Jones Industrial Average jumped 507 points or 2 per cent, accelerating its uptrend to close at a record level of 25,803 last week. However, both the daily and weekly indicators feature in the overbought territory, indicating the possibility a near-term corrective fall. Significant supports for the index are at 25,600 and 25,500 levels. A conclusive plunge below 25,500 can pull the index down to 25,300 and 25,000 over a short- to medium-term. Resistances are at 25,900 and 26,000. The Nikkei 225 (23,653) managed to breakthrough a vital resistance level of 23,000 in early January and has strengthened its uptrend. The index now faces an immediate resistance 24,000. A break above the barrier can push the index higher to 24,500. Key support at 23,000 can provide cushion for the index.

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